Start picking Fundamentally strong stocksWell the great Indian stock markets continued their southward journey. Today they reached Kanyakumari but realising they have gone too far returned back to settle at Bangalore. Jokes apart, today was one more day of high drama at the dalal street with trading coming to halt within minutes of opening. The street was market with scary scenes ( or do I say pleasant stock prices for those sitting on cash !) with tickers pointing losses tuning to 10 to 20% and even worse for a majority of stocks. Well, in my post "Stock Markets- New Year, New Horizons" dated 13thjanuary, I had mentioned that the Indian markets will see profit booking in the month of January. But then hardly could I imagine that the extent of fall will be of this magnitude and speed. I was expecting the markets to correct by around 2000 points but as I write this post the markets have already corrected by more than 4000 points on sensex. Though the trigger was FII selling , the things got worse with similar downtrend in asian counterparts and margin calls getting triggered. So what does this great fall of sensex teaches us and how should we proceed further ?As we sow, so we ReapWell, when the markets skyrocketed from 16000 levels to 21000 levels, the reason quoted was that there is a flood of funds in the markets and the rally was driven by liquidity. Did anyone wondered what happens when liquidity drives the markets ? Yes, all of us were surprised by the sharp upward movements of the market, but were eventually caught in the momentum euphoria and started picking stocks even though it was clicking somewhere in the mind that the price is quite high. The fundamentals were forgotten, everybody wanted to make as much money as possible without realising that even the correction can be equally or even more sharp then the upward journey. Well, the lesson is while riding the momentum, don't overlook the fundamentals.Overcome the Greed and Fear factorsI have been advising on many occasions through my posts that one should keep on booking profits at reasonable intervals. The greed to earn few more bucks often ends in loosing the handsome profit that one could have booked. On the other hand, equally important is not to fear in times of crisis like this. If one makes a informed decision while buying into a stock, this situation will not arise. I may sound to be a preacher but this is hard fact that one should imbibe in order to avoid disappointments in times of steep falls. It would be foolish to sell at current levels as we know that eventually the markets have to cover up and move ahead. We have seen such falls in the past and the lesson learnt is that such falls are accentuated with lot of factors and hence a bounce back, sooner or later is imminent. How long can Reliance hold at 2300 levels, how long can L&T hold at 3600 levels ...? So what if the FII's sold ? Will they not reinvest the money back in India? What about billions of rupees lying accumulated with various funds ? Will they keep sitting on the cash ? Think about it ? Markets are meant to be volatile...a smart Investor is one who makes use of such volatility to improve his wealth. Where are the markets headed ?I don't know. If I had known for sure, I would have taken a position in Nifty futures and earned handsome money. No body knows, what one says is his guess built purely on his or her imagination and nothing else. None of the experts could have foreseen today's fall. But let us understand that in view of what has happened in last seven days, it will take time for things to settle. We may or may not see more downside from current levels, but the path to recovery would not be an easy one. So what should one do in such circumstances ? Well, take stock of your stocks. For those who are fully invested wait for the recovery to happen and by that time identify fundamentally strong stocks in your portfolio and get rid off the speculative ones as when you get better prices. Should I but at current Levels ?For last few days, I had a tough time explaining friends and well wishers the reason for the fall in markets and which stock to buy at current levels. One of them was quite enthusiastic about buying. When I asked what he intended to buy, he told Reliance Petroleum. I asked him why ? He told me that the stock has come down from 250 levels to 125 levels so he finds a value buy (!) in the stock. I asked him if he knows why the stock ran up from 130 levels to 250 levels , he said he didn't have any idea. I asked him if he knows that RPL is yet to commence its operations, he said no he didn't knew about it. This is one of the basic mistake one often makes while taking a decision to buy or sell a particular stock. I was not against his buying the stock, but the fact that this person doesn't know why he is buying and what he is buying makes me understand that why people burn their fingers quite frequently in the markets.Coming back to the question whether it is the right time to buy, I would say "Yes". So what should one buy ?Stocks to buy at current levelsNow that's a tricky question. Today was a mouth-watering day if one was looking at the stock prices to decide which one to buy. It was like a big end of season discount sale happening and you wish you could have bought a lot of stuff but your pocket is not allowing you. There was also a scene where it was difficult to decide which one to buy and which one to leave. Such a scenario is also a tricky one and one may end up buying nothing at the end of the day !Well coming back to the topic, I would suggest that investors should remain cautious and not take things lightly. It is the time to awaken and understand that things may change from good to worse in no matter and hence one should not invest in just stocks, one should invest in a business. Think of the business you are going to invest in and not just the stock prices. understand if the business can give you a stable return in term of growth rate and whether it can withstand rough weathers. Apply your mind to know if the management has the ability to drive the company to greater heights amidst all roadblocks backed by its past performance. Understand that the sector that you are investing in has the potential in terms of providing the company a room for achieving a higher growth rate. Let's look at some fundamentally good stocks which have fallen significantly and hence offer good entry points. This is not an exhaustive list . This is just a few out of the list of stocks I track. We will discuss individual stocks in forthcoming posts.

Again, a good strategy would be to do a staggered buying so that you may get better prices for the stocks.

As per the latest data available on NSE website the Reliance power IPO has been oversubscribed by 23 times by now. Money control says that the Retail portion has been subscribed 6 times. We were discussing in yesterday's post about the payment option to be chosen for applying to reliance power IPO. Now since we have more clarity on the subscription data , it looks that applying through part payment option would be a good idea as your capital investmnet would be lesser ensuring higher return on your investment.

However, it is sad to say that the company has not clarified if it going to allot fully paid up shares to those applying for partly paid up shares in case of oversubscription. So the clouds of uncertainty are still there. The company reserves the right to allot you partly paid shares and call for the balance amount at a later date stipulated in the prospectus. Hence, one may not get shares before listing and may be reduced to a mere viewer seeing others booking listing gains. So if you are willing to take the risk choose the option of part payment. But if you want to be on doubly sure that you sell on listing day, paying full amount is a safe option. I am going to take a risk and apply through partly paid option. Meanwhile Grey market is qouting a premium in the range of Rs. 290-310 on the offer price of Rs. 450 with hardly any takers at that premium.
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Dear friends, you must have heard a lot on Reliance power IPO and why not, there is an unprecedented euphoria for this IPO. Ask anybody and the reply will be – “Reliance Power- Yes, I am going to apply for it”. This is called the power of Name or say power of brand Value. You can sell a rock for a price of diamond if it is sold in the name “Reliance” and yes such brands are not created in days. It has taken late Sh. Dhiru Bhai Ambani a life time to create this brand and such is the magic of the brand that a project which is going to be up and running only in 2010 can ask a massive premium and that too with a expectation of it doubling on the listing day. So who says “Naam mein Kya rakha hai ?”

I am not going to write an IPO update sort of thing on reliance power. Why ? because I don’t think anybody would like to read me on whether they should apply for it or not! But I would like to dwelve on some questions that this IPO has raised.

Is Reliance Power going the RPL way?

Yes, the IPO of Reliance Power has something in common with that of Reliance Petroleum apart from fact that both are from “Reliance” stable. Investors have seen what happened to RPL post listing. Reliance Power is similar to RPL since it is not going to generate revenues till 2010. So, what does this convey ? This conveys that once the listing euphoria is over, the scrip will be dependent on news on the progress of its projects to move up or down and will be quite volatile with downward bias. I am not sure if you agree with me or not but Anil Ambani does not stand anywhere near the execution intelligence of big brother Mukesh Ambani and the they way the various projects of Reliance power are lined up, it would be an uphill task for Junior Ambani to withstand the trust of the investors. Let’s hope for the best.

Should One apply for fully paid or partly paid ?

This has been a bit confusing part for the investors. Company has provided two options. Option”A” where the investors can apply for fully paid up share. In this case they have to pay Rs. 430 (as Rs. 20 discount for Retail Investors) per share at the time of application.

Under Option “B” the investors can apply for partly paid shares. In this case they have to pay only 25% of the share price. The company will make a call for the balance amount post listing and the investors have to pay the balance amount at that point of time. In this case the investors will not be able to sell on the listing day since they will have only partly paid shares.

Now there is a catch. The company reserves the right to adjust the refund payable to the investors against the partly paid shares and issue fully paid up shares. In this case these investors would also get fully paid up shares and can sell them on listing.

Now the mathematics is that if the retail portion gets oversubscribed by more than 4 times (which it surely will) the partly paid investors will also be issued fully paid up shares and the refund due on their application will be adjusted towards the balance payment. In that case it would be advisable to apply for partly paid shares. If any friend has any information contrary to this please let us know by leaving a comment.Reliance Power WebsiteCheck Allotment Status of Reliance Power IPORead More!

It's a great feeling to be back on the blog after a period of one month. Last month had been quite hectic in terms of balancing both the official and personal fronts and alas, the blog suffers. I ended the year 2007 on a devotional note with a trip to Lord Tirupatibalaji and the trip was quite satisfying in terms of re-energising for the new year ahead as well as spend some quality time with the family. I wish that I could spend more time with the blog this year and fulfil the aspirations of the readers who often complain of irregular updates and missing investment ideas on the blog.

I wish all of you a very happy, prosperous, fun-filled and an eventful new year and we all wish that the India Inc. too manages to bring cheers on the D-Street. So let's start the new year take stock of the past events and how would they shape the sensex this year.

Year 2007 : Sensex Redefined

The Year 2007 saw sensex raising its bar to record a second highest rise in last two decades of its history. Sensex rose 47.1 % to record a gain of about 6500 points. The journey of sensex from 13786 in opening of 2007 to 20287 at the close of 2007 broke many physcologicalzinx in the mind of the investors. When 2007 started people were were amazed at the thought of sensex rising to 20000 and yes, it happened. Be it Foreign Institutional Investors, Mutual Funds, the news on P-Notes, Fed Rate Cuts, the sizzling IPO markets,the quarterly results, all contributed to the rise of sensex. The heroes were , of course, the metals, Oil and gas and Capital goods sector. IT, healthcare and FMCG companies failed to impress.

So what's the take on Sensex for 2008 ? 23000, 26000 or 30000 ? Well it would be at the best one's own guess to predict the markets, but there seems to be a concurrence among the experts between sensex closing somewhere between 23000 to 26000 in year 2008. Now you may say that it is a huge gap to play and yes, the markets are all about it. So stop worrying about sensex targets and start picking the probable winners. Make sense ?

Tracking the Masters of the Game

Let us have a look at the FII and Mutual fund investment pattern during FY07 and in January till date and see if it throw up some signs for the year ahead.

The chart above shows the Net Investment done by FII's and Mutual Funds respectively during each month of year 2007 and January 2008 till date. The number throws up some interesting patterns.

March 2007 was the only month in the year when FII and MF's sold unanimously.

FII's were net sellers in 3 out of the 12 months while Mutual funds were net sellers in 5 of the 12 months.

Mutual funds started 2007 with a strong note while FII's started picking up in Feb-07.

Major part of FII Investment has come in Sep-07 and Oct-07. Mutual funds were caught selling in these months !

Highest buying by mutual funds was done in August-07, while FII's were highest net sellers in this month.

Both FII's and Mutual funds have started January on a strong positive note.

There is a notion among the investors that FII's do the fund allocation in the month of January and hence that would dictate the FII strategy for the Indian markets. I think that this conclusion does not hold good. Just see FY07, FII's started January on a weak note and came in real action only by the second half of the year where they did massive buying. So it would be wrong to conclude that January statics hold the key.

Going by what has come by Jan-08 till date, both FII's and MF's have been net buyers. However, one should remember that FII have bought heavily in Sep-07 and Oct-07 and they would resort to book profits as a part of their strategy before moving further in the markets. So from that perspective one can see profit booking in January and February in the markets. However, given the positive outlook on Indian economy and higher probability of deep fed rate cuts in view of credit crisis in US, the Indian stock markets would continue to be a hot destination for the foreign Investors.

Well, I would have to leave this at this stage. I will continue this post and we will discuss the factors that would determine the sensex levels for 2008 in the next post.